HomeLow carbon futureIs a UK carbon tax the catalyst we need to stimulate a green recovery?

Is a UK carbon tax the catalyst we need to stimulate a green recovery?

intext-carbon-blogThis post is by Hannah Dillon, head of the Zero Carbon Campaign

What should a post Covid-19 society look like? I hope we can all agree that a world in which businesses continue to profit from pumping vast amounts of carbon dioxide into the atmosphere should not be part of the picture.

Calls for change are coming from all quarters
From the Secretary General of the United Nations to the President of the European Commission, leaders around the world have acknowledged the need to ‘build back better’, ensuring that – in responding to the largest crisis that the world has ever navigated in peacetime – we do not row back against the tentative progress made in tackling the largest crisis of all time: climate and ecological breakdown.

A growing coalition of corporates have joined the ‘European Alliance for Green Recovery’, and a number of leading economists have argued that green recovery offers the best economic returns for government spending. Calls for change have been backed up by public opinion, with just nine per cent of British people wanting to return to life as normal once the current crisis is over. It seems that, after many years of ‘last chances’ and critical ‘points of no return’, the time has finally come for us to make a decision about the future of our planet.

A carbon price gives businesses confidence to invest
Given the fall in the EU’s emission trading scheme (ETS) price, the dramatic downturn in the global price of oil and the role that air pollution has played in susceptibility to the effects of COVID-19, there is now a case for implementing stronger and more consistent carbon pricing in the UK. What better way to a green recovery than addressing the market failure that has failed to factor in the externalities of carbon to the price of goods and services? As a recent report by LSE has found, an effective carbon charge – accompanied by revenue recycling schemes such as household dividend payments –  may well be the catalyst the UK needs to ensure a more resilient future.

The benefits of carbon pricing have been covered extensively, but they are worth briefly reconsidering here. We need look no further than the role that the Carbon Price Floor has played in weaning the UK off its dependence on coal to recognise the effects that pricing carbon and equivalent greenhouse gases can have on driving long term emissions reductions. It can also lead to the emergence of new low carbon technologies: when the price of carbon on the EU market reached about €30 per tonne, applications for new patents relating to low carbon innovations increased by 30 per cent. Given that green economic activity has been shown to provide more jobs, this is certainly something to be celebrated in light of the expected serious unemployment impacts of Covid-19.

A steadily rising carbon price can also give businesses confidence to invest in existing low carbon solutions where they might have been holding off, due to high costs or lack of certainty about return on investment. And, whilst we know that businesses will do what they can to pass carbon costs onto consumers, we also know that the British public want greater transparency about the goods and services they buy, and that they are more willing than ever to tackle the climate crisis. If a carbon charge can ensure that low carbon equals low cost, then the price barriers and lack of transparency can surely be overcome.

Britain can move quickly to lead
Climate-friendly rhetoric is coming out of Europe, even in the midst of the current crisis: 17 European climate and environment have promoted the Green New Deal as a framework for Europe’s green recovery, Netherlands, France and Spain support placing a ‘carbon wall’ around Europe and Macron has proposed a Europe-wide Carbon Price Floor to prevent further declines in the EU ETS price. And, though the UK may be hesitant to follow, there is no reason why we cannot move quickly to lead, an intention made clear in recent ministerial contributions to the Petersberg climate dialogue.

As incoming president of the now delayed COP26, the UK has a big role to play in driving the next phase of global ambition towards achieving the Paris climate agreement.  But our legitimacy will extend only as far as our domestic ambition, and we have yet to put substantial policy in place to achieve our net zero target. A carbon charge – accompanied by a border carbon adjustment mechanism – could provide this and a framework for the UK to push others to do better, being one of the few environmental policies that has the potential to unite global leadership across the political spectrum. It will also generate revenue to help kickstart a green and just recovery from Covid-19.

Of course, there are challenges around the implementation of a carbon charge. The inherently regressive nature of a carbon tax springs to mind. And there are concerns about carbon leakage and the price point at which a charge might be set. These issues are being considered by the Zero Carbon Commission, and we will present our proposal for a fair and effective UK carbon pricing system this summer. But, as we look ahead at the challenges we face and consider the growing consensus behind the need to ‘build back better’, a carbon charge may well be a solution the UK needs.

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Green Alliance is a charity and independent think tank focused on ambitious leadership and increased political support for environmental solutions in the UK. This blog provides space for commentary and analysis around environmental politics and policy issues as they affect the UK. The views of external contributors do not necessarily represent those of Green Alliance.

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